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Exhibit 99.1
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
For the Three Months ended March 31, 2012 and 2011
May 8, 2012
2012 First Quarter Financial Results 1
INTRODUCTION
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (this “MD&A”) is dated May 8,
2012. It should be read in conjunction with the unaudited consolidated financial statements and notes thereto for Wi-LAN Inc.
for the three months ended March 31, 2012 (the “Financial Statements”). References in this MD&A to “WiLAN”, “our
company”, “we”, “u s” and “our” refer to Wi-LAN Inc. and its consolidated subsidiaries during the periods presented unless
the context requires otherwise. The Financial Statements have been prepared in accordance with generally accepted accounting
principles in the United States of America (“U.S. GAAP” or “GAAP”) for interim financial information. These Financial
Statements do not include all of the information and notes required by U.S. GAAP for complete financial statements.
Accordingly, this MD&A should be read in conjunction with our audited financial statements and notes for the year ended
December 31, 2011 and the related management’s discussion and analysis of financial condition and results of operations for
our year ended December 31, 2011 dated March 9, 2012, each as filed with the Canadian securities regulators on SEDAR and
with the SEC on Form 40-F on EDGAR.
Unless otherwise indicated, all financial information in this MD&A is reported in thousands of United States dollars (“U.S.
dollars”), with the exception of share and earnings per share data which is reported in number of shares and U.S. dollars
respectively. The tables and charts included in this document form an integral part of this MD&A.
We prepared this MD&A with reference to National Instrument 51-102 - Continuous Disclosure Obligations of the Canadian
Securities Administrators. Under the U.S./Canada Multijurisdictional Disclosure System, we are permitted to prepare this
MD&A in accordance with Canadian disclosure requirements which may differ from U.S. disclosure requirements. This MD&A
provides information for the three months ended March 31, 2012 and up to and including May 8, 2012. Additional information
filed by us with the Canadian Securities Administrators, including quarterly reports, annual reports and our annual information
form for the year ended December 31, 2011, is available on-line at www.sedar.com and also on our website at
www.WiLAN.com . Our registration statement on Form 40-F can be found on the SEC’s EDGAR website at www.sec.gov .
Our management is responsible for establishing appropriate information systems, procedures and controls to ensure that all
financial information disclosed externally, including this MD&A, and used internally by us, is complete and reliable. These
procedures include the review and approval of our financial statements and associated information, including this MD&A, first
by our management’s Disclosure Committee, then by our Board of Directors’ Audit Committee (the “Audit Committee”) and,
finally, by our Board of Directors as a whole (the “Board”).
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This MD&A contains forward-looking statements and forward-looking information within the meaning of the United States
Private Securities Litigation Reform Act of 1995 and other applicable United States and Canadian securities laws, including such
statements relating to:
• assumptions and expectations described in our critical accounting policies and estimates;
• our expectation regarding the adoption and impact of certain accounting pronouncements;
• our expectation regarding the growth rates of licensees’ businesses and the expected revenues to be collected from
such licensees;
• our expectations with respect to revenues to be recorded as a consequence of license agreements with fixed periodic
payment structures;
• our expectations with respect to the timing and amounts of any settlement agreements that may be entered into with
respect to any of our litigation matters;
• our expectations with respect to our ability to sign new licenses and to sign renewal agreements with existing
licensees;
2012 First Quarter Financial Results 2
• our estimates regarding our effective tax rate;
• our expectations with respect to the sufficiency of our financial resources; and
• our expectations regarding continued expansion of our patent portfolio through the acquisition of patents from third
parties and from the development of new inventions or our entry into licensing relationships with third parties.
The words “expect”, “anticipate”, “estimate”, “may”, “will”, “should”, “intend”, “believe”, “plan”, “continue”, “anticipate”,
“project” or the negative of these words or other variations on these words, comparable terms and similar expressions are
intended to identify forward-looking statements and forward-looking information. Forward-looking statements and forward-
looking information are based on estimates and assumptions made by us in light of our experience and our perception of
historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate
in the circumstances.
We provide forward-looking statements and forward-looking information to assist external stakeholders in understanding our
management’s expectations and plans relating to the future as of the date of this MD&A and such statements and information
may not be appropriate for any other purposes. The forward-looking statements and forward-looking information in this MD&A
are made as of the date of this MD&A only. We have no intention and undertake no obligation to update or revise any forward-
looking statements or forward-looking information, whether as a result of new information, future events or otherwise, except as
required by law.
RISKS AND UNCERTAINTIES
Many factors could cause our actual results, performance or achievements to differ materially from those expressed or implied
by the forward-looking statements and forward-looking information, including, without limitation, the following factors, which
are discussed in greater detail under the heading “Risk Factors” in our Annual Information Form (“AIF”):
• certain of our patents may be found to be invalid, unenforceable and/or not infringed by any specific third party;
• we may be required to establish the enforceability of our patents in court in order to obtain material licensing revenues;
• certain of our patents are, and others may be, subject to administrative proceedings that could invalidate or limit the
scope of those patents;
• licensing our patents can take an extremely long time and may be subject to variable cycles;
• we are currently reliant on licensees paying royalties under existing licensing agreements and on the additional
licensing of our patent portfolio to generate future revenues and increased cash flows;
• reduced spending by consumers due to the uncertainty of economic and geopolitical conditions may negatively affect
us;
• changes in patent or other applicable laws or in the interpretation or application of those laws could materially
adversely affect us;
• fluctuations in foreign exchange rates impact and may continue to impact our revenues and operating expenses,
potentially adversely affecting financial results;
• we will need to acquire or develop new patents to continue and grow our business;
2012 First Quarter Financial Results 3
• we may not be able to compete effectively against others to acquire patent assets – any failure to compete effectively
could harm our business and results of operations;
• we have made and may make future acquisitions of technologies or businesses which could materially adversely affect
us;
• our acquisitions of patents are time consuming, complex and costly, which could adversely affect our operating
results;
• our quarterly revenue and operating results can be difficult to predict and can fluctuate substantially;
• we may require investment to translate our intellectual property position into sustainable profit in the market;
• the generation of future V-Chip revenues and the likelihood of our signing additional V-Chip licenses could be
negatively impacted by changes in government regulation;
• there can be no assurance as to the payment of future dividends;
• our ability to recruit and retain management and other qualified personnel is crucial to our ability to develop, market
and license our patented technologies;
• the trading price of our common shares has been, and may continue to be, subject to large fluctuations;
• as a foreign private issuer, we are subject to different United States securities laws and rules than a domestic United
States issuer, which may limit the information publicly available to our shareholders;
• if we lose our United States “foreign private issuer” status in the future, which could result in significant additional
costs and expenses to us;
• the financial reporting obligations of being a public company in the United States are expensive and time consuming,
and place significant additional demands on our management;
• an investor may be unable to bring actions or enforce judgments against us and certain of our directors and officers;
• our actual financial results may vary from our publicly disclosed forecasts;
• if at any time we are classified as a passive foreign investment company under United States tax laws, United States
holders of our common shares may be subject to adverse tax consequences;
• the acquisition of, investment in, and disposition of our common shares has tax consequences;
• substantial future sales of our common shares by existing shareholders, or the perception that such sales may occur,
could cause the market price of our common shares to decline, even if our business is doing well;
• we may require additional capital in the future and no assurance can be given that such capital will be available at all or
available on terms acceptable to us;
• certain Canadian laws could delay or deter a change of control; and
• our authorized capital permits our directors to issue preferred shares which may prevent a takeover by a third party.
2012 First Quarter Financial Results 4
These factors should be considered carefully, and readers should not place undue reliance on our forward-looking statements
and forward-looking information.
NON-GAAP DISCLOSURE
We use the term “adjusted earnings” to reference earnings from continuing operations before stock-based compensation
expense, depreciation & amortization expense, interest expense, unrealized foreign exchange gains or losses, restructuring,
incentive buy-out, success fee, transaction costs, investment income, debenture financing costs, provision for income taxes,
and certain other charges. We report adjusted earnings in the belief that it may be useful for certain investors and readers of the
financial statements as a measure of our performance. ADJUSTED EARNINGS IS NOT A MEASURE OF FINANCIAL
PERFORMANCE UNDER U.S. GAAP . It does not have any standardized meaning prescribed by U.S. GAAP and is therefore
unlikely to be comparable to similarly titled measures used by other companies. ADJUSTED EARNINGS SHOULD NOT BE
INTERPRETED AS AN ALTERNATIVE TO NET EARNINGS AND CASH FLOWS FROM OPERATIONS AS DETERMINED IN
ACCORDANCE WITH U.S. GAAP OR AS A MEASURE OF LIQUIDITY.
CORE BUSINESS AND STRATEGY
In mid-2006, we re-focused our business on technology innovation and licensing. At that time, we had twenty patents which
included certain patents we believed could be used in a licensing program. In launching the new form of business, a key
strategy was to strengthen the patent portfolio to sustain long term revenue opportunities and associated growth.
Over the past five years, we have grown our full time regular staff from 1 to 51, increased our patent portfolio from 20 patents to
more than 3,000 issued or pending patents, signed more than 255 licensees, and grown our annual revenues from approximately
$1,900 to approximately $106,000 in our 2011 fiscal year representing a compound annual growth rate of more than 100%. As a
result of the increase in the breadth and depth of our patent portfolio, we believe we have more than 40 separate key patent
families available to license. We define a patent family in this context as a patent or family of patents that we have mapped to a
particular product or industry standard.
During the first quarter of fiscal 2011, we signed license agreements with a number of large semiconductor companies and
several specific product vendors. These actions resulted in the dismissal of four of our significant litigations. We believe these
license agreements will, over the next several years, generate significant revenues.
Our principal source of revenue is from licensing our patent portfolio and licensing portfolios on behalf of third-party patent
holders. We plan to build upon our significant base of signed license agreements and increase our licensing opportunities by
growing our patent portfolio with a combination of technology innovation through internal research and development, patent
acquisitions, licensing relationships with patent holders, and corporate mergers and acquisitions.
We have licensed patents to companies that sell products utilizing technologies including Wi-Fi, WiMAX, LTE, CDMA, DSL,
DOCSIS, Bluetooth and V-Chip.
Generally, our licensing agreements take into consideration rights to license the patents covered and past infringement.
Revenues may be lump-sum settlements for licensing rights and/or past infringement, fixed-price agreements that are paid over a
specified period of time or running royalties based on a price per-unit and/or a percentage of product sales or service revenues
enjoyed by licensees. Settlement of license agreements is generally made in cash, although we have in the past and may in the
future settle license agreements with a combination of cash and in-kind patents. We may consider in-kind patents if the patents
fit our value proposition and strategic objectives.
2012 First Quarter Financial Results 5
Royalty rates and the consideration for a license may vary significantly with different licensees since there are many factors that
may make differing terms appropriate. Factors that may affect our royalty rates may include: the clarity of the reads of patent
claims on the products of the prospective licensee; the significance of the patented invention to the performance of such
products; the strength of any prior art that could invalidate the patents; the profitability of the products in question; the
propensity of the prospective licensee to resist taking a license or to litigate; the number of patents that are applicable; the
volume of products that infringe; the geographies into which infringing products are manufactured and sold; the prospective
licensee’s future sales plans; and the prospective licensee’s financial status.
Notwithstanding early success in many areas, the United States and foreign environment for patent licensing companies such
as ours has become increasingly difficult during the past several years due to legal developments. In this more difficult
licensing environment, we will continue to adapt and evolve to achieve success. Recent examples of our evolution include the
hiring of highly qualified specialists and subject matter experts in the applicable technologies, acquisition of patents that have
strengthened our patent portfolio and multiple financing deals that have significantly strengthened our financial position. As
well, we recently signed significant license agreements with large industry leaders. We believe these recent accomplishments
have established a strong foundation for our future operations and growth.
KEY STRATEGIC INITIATIVES
Technology Innovation
Building on our history of technology innovation which directly contributed to the commercialization of broadband wireless
products more than a decade ago, we continue to engage in research and development (“R&D”) activities.
Our internal R&D efforts seek to generate new inventions in next generation communications technologies and to identify new
technology/commercial product opportunities. With the goal of growing and strengthening our intellectual property portfolio,
this technology innovation complements our ongoing activities to jointly license or acquire appropriate technology.
Licensing Capability Growth
Our licensing activities are carried out by a dedicated team of professionals including licensing executives and technical experts.
The centralization of licensing activities allows us to license any portion of our patent portfolio, thereby achieving maximum
value for our intellectual property. Growth of the team capability and expertise in technology, legal and patent domains will be
managed on an ongoing basis taking into account our financial and operating performance.
Licensing Process Execution
We believe our licensing program has delivered significant results. To date, more than 255 companies have licensed one or more
of our patented technologies including companies such as ASUSTeK Computer Inc., Atheros Communications, Inc.
(“Atheros”), Broadcom Corporation (“Broadcom”), CSR plc (“CSR”), Fujitsu Microelectronics America, Inc. and its affiliates
(“Fujitsu”), Hon Hai Precision Co., Ltd., Infineon Technologies AG (“Infineon”), Intel Corporation (“Intel”), LG Electronics, Inc.
(“LG”), Marvell Semiconductor, Inc. (“Marvell”), Motorola Mobility Holdings, Inc., Motorola Solutions, Inc., NEC Corporation,
Nikon Corporation, Nokia Corporation (“Nokia”), Panasonic Corporation, Research In Motion Limited, Samsung Electronics Co.,
Ltd. and Sharp Corporation.
Complementing our determination to reach license agreements through negotiation is our resolve to receive fair compensation
for the use of our patented technologies. We are prepared to take all necessary steps, including investing in litigation, to ensure
we receive fair value for the use of our patented technologies. We have launched several litigations and have responded to
several actions filed against us, all in the areas of patent infringement. Although we cannot anticipate how any litigation will
affect ongoing settlement discussions, we believe it is likely that settlement discussions with parties named in a legal action will
continue and some parties may be inclined to take licenses.
2012 First Quarter Financial Results 6
KEY PERFORMANCE DRIVERS
Markets
Our licensing performance is driven by our ability to license the technologies covered by our patents.
We expect to continue to generate virtually all of our revenues from licensing our patent portfolio and other technologies. We
currently have a portfolio of more than 3,000 patents, including issued and pending patents and foreign equivalents, many of
which we have licensed to companies that sell products that utilize technologies including: Wi-Fi; CDMA; WiMAX; LTE;
ADSL; DOCSIS; Bluetooth; and V-Chip.
The Institute of Electrical and Electronics Engineers, Inc. (the “IEEE”) is a professional organization that sets standards for
many types of electronic equipment. As an example, for the Wi-Fi market, the IEEE has issued standards 802.11 a, b, g and n
regarding the operation of that equipment. Similarly, IEEE standards 802.16 d and e define operations standards for WiMAX
equipment.
Wi-Fi is a wireless technology standard that permits enabled devices to connect to the Internet through a wireless network, all
based on IEEE 802.11 a, b, g or n protocols. Many consumer devices including personal computers, routers, gaming devices and
peripheral devices rely on Wi-Fi protocols to connect to the Internet.
CDMA is one of the two main cellular technologies that most cellular phone systems currently utilize and has a very strong
position in the North American market and in many Asian and Caribbean nations. UMTS (Universal Mobile
Telecommunications System) technology and its HSPA (High-Speed Packet Access) evolution, which are both CDMA-based,
is the other main technology currently used in cellular phones.
WiMAX, based on IEEE 802.16 standards, is a framework for wireless communication that permits high-throughput broadband
connections over long distances. WiMAX can be used for a variety of wireless applications including high-speed connectivity
for computers and cellular phones.
LTE is a high performance air interface for cellular mobile communications systems competing with WiMAX for adoption by
many wireless service providers worldwide as the next evolution in cellular phone technology. With the increase in “smart
phone” penetration rates and the desire to share in the roaming revenues of out-of-network cellular phone users, many wireless
service providers are working to move to a common air interface standard to promote interoperability.
ADSL is the most common method of providing high-speed Internet access over conventional telephone wiring, currently
representing about two-thirds of the global market for broadband network access. We acquired US, Japanese and European
ADSL and other telecommunications patent families from Nokia and Fujitsu.
DOCSIS is a standard that governs high-speed data transfer on cable networks and is used in most cable modem deployments
in North America to provide high-speed Internet access, and in many digital set-top boxes to enable pay-per-view and on-
demand television viewing features.
Bluetooth is a wireless protocol for exchanging data over short distances between fixed and mobile devices that provides a way
to connect and exchange information between devices such as mobile phones, laptop computers, digital cameras and other
electronics equipment.
V-Chip technology permits television receivers to block programming based on ratings carried with the broadcast signal as
detected by a television receiver that has been programmed by parents who wish to manage their children’s television viewing.
V-Chip technology has been mandated by the US Federal Communications Commission to be included in all devices capable of
receiving a television signal other than televisions having a screen size of thirteen inches or less.
2012 First Quarter Financial Results 7
We continue to evaluate all of the patents in our portfolio to determine whether they may be applicable to other technology and
product areas.
The Wi-Fi, CDMA, WiMAX, LTE, ADSL, DOCSIS, Bluetooth and V-Chip markets with respect to which we have licensed many
of our patents to date are large, multi-million or multi-billion dollar markets. Independent estimates of the size of the markets,
based on the equipment-level sales in the calendar years noted, are as follows:
· Wi-Fi – 2011 North American sales of approximately 91 million notebook, netbook and tablet computers, $3.4 billion in
worldwide Wi-Fi network infrastructure, and growing to include mobile handsets, portable media players, televisions,
Blue-ray disc players, etc. (sources: DisplaySearch; Dell’Oro);
· US CDMA – 2011 mobile CDMA and WCDMA handset sales of approximately 118 million units and base station sales
of approximately $7.4 billion (sources: Strategy Analytics; Dell’Oro);
· WiMAX – worldwide sales over $1.4 billion in 2011 and expected to grow at a compound annual growth rate of 11%
from 2011 to 2015 (source: Dell’Oro);
· LTE – infrastructure sales of over $7.7 billion expected for 2015, a 86% compounded annual growth rate over the
USD$351 million in 2010 sales (source: Dell’Oro);
· ADSL – ADSL equipment sales are expected to average over $4 billion annually for the next two years, with the
subscriber base growing 8% over that period (sources: Dell’Oro);
· DOCSIS – US sales of approximately 14 million cable modems and $625 million in cable modem termination systems
sales in 2011 (source: Dell’Oro);
· Bluetooth – worldwide Bluetooth semiconductor revenue going from $1.7 billion in 2007 to $3.3 billion by 2012, with
approximately 70% of all mobile handsets having Bluetooth functionality by 2012 (source: IDC); and
· V-Chip – sales of approximately 45.8 million digital televisions in North America in 2011, a growth rate of 4.1% over the
previous year (source: DisplaySearch.com).
Financial Condition
Our financial strength, measured in terms of maintaining a solid balance sheet with strong cash reserves, is a critical element in
our ability to execute on our strategy of signing patent licensing agreements. Financial strength is also critical to facilitate
strengthening our patent portfolio through patent acquisitions, entering into licensing relationships, generating patents on
internally developed technology, and engaging in litigation when required. In addition to our balance sheet, we consider our
backlog of signed license agreements, measured in a weighted average life remaining term to be an important element of
financial condition. Based on the more than 255 licenses signed as of March 31, 2012 we believe our weighted average life
remaining of signed licenses is approximately five years.
Financial strength is important when we engage in litigation in order to enforce our intellectual property rights since litigation
costs are often significant. We believe that maintaining a substantial cash reserve is an important factor in convincing
companies to enter into agreements and avoid protracted litigation. Further, companies that are inclined to enter litigation with
us need to understand our ability and resolve to carry these litigations through to completion.
Professional and Systematic Approach to Patent Licensing
A professional and systematic approach to patent licensing is essential to achieve success. We have developed our approach
over several years and that approach is founded in a strong understanding of patent law, detailed infringement determinations,
and fair and reasonable licensing terms. We believe that our internal technical resources, supported by a network of external
advisors, are a fundamental element in a successful licensing program as discussions with potential licensees quickly address
technical issues. This approach has been very successful for us as we have signed more than 255 licensees since mid-2006. We
believe that this approach can be utilized for any new technology markets that we may choose to enter.
2012 First Quarter Financial Results 8
Technology Development
We have a rich history of technology development and continue to have an active R&D program. Our in-house R&D focuses
on the development of advanced technologies that may have licensing applications in the future. By focusing on anticipating
problems with the adoption of new technologies, and developing patented solutions to these problems, we can continue to
expand our overall licensing programs.
CAPABILITY TO DELIVER RESULTS
We believe we are well positioned to deliver continued strong financial performance due to our strong and growing patent
portfolio, professional and systematic approach to licensing intellectual property, management team, track record of signing
patent license agreements, significant base of signed agreements and solid financial position.
Strength of Patent Portfolio and Ability to Derive Value from Patents
As a result of patent acquisitions, licensing relationships and internal technology development, our patent portfolio has
continued to grow in numbers, technological diversity and breadth of geographic coverage. As of March 31, 2012, we own more
than 3,000 patents and applications. The geographic and technological diversity of our patent portfolio helps to ensure that we
will be able to garner royalties applicable to worldwide product sales.
As noted elsewhere in this MD&A, we believe the weighted average life remaining for our current license agreements is
approximately five years, meaning we expect to collect revenues from these agreements for, on average, an additional five years
although not necessarily equally year to year.
Patent Licensing Methodology
We have developed a methodology for our licensing programs that has yielded strong results since mid-2006 having generated
cumulative revenues to the end of 2011 of more than $269,000. When approaching a potential licensee, we present compelling
reasons to enter into a license agreement with detailed infringement analysis along with a fair and reasonable license rate. In
many circumstances, we also present the potential licensee with a broad array of patents or families that may be applicable to
the licensee thus increasing their risk of not signing a license. If the licensing discussions are stalled or abandoned, we may
pursue the protection of our intellectual property through litigation. Without the willingness and capability to enforce patent
rights through the courts, a licensing program may not gain credibility and traction in the market. We understand this dynamic
and are prepared to use the court system to enforce our rights.
Patent Administration
Our licensing success depends on having a quality portfolio of patents that are not only technically valuable, but are properly
filed and maintained in appropriate jurisdictions. We devote a significant effort to the administration of our patent portfolio,
ensuring any applications filed reflect the quality required in a licensing program. We maintain a carefully balanced mix of
internal and external patent administration resources to optimize patent quality.
Workforce and Management
We employ individuals with unique skill sets and proven abilities to conclude patent license agreements. This is important,
since strong patents are only part of what is needed to derive substantial revenues from a patent portfolio. Having expertise in
the relevant markets, in patent portfolio development, and in patent licensing and litigation are as critical as having good
patents. Our reputation and expertise, together with our proven ability to negotiate license agreements and litigate, if necessary,
all contribute significantly to our ability to deliver patent licensing results.
Financial Strength
As at March 31, 2012, we had a cash and cash equivalents, and short-term investments balance of $196,027. During the three
months ended March 31, 2012, we repurchased 1,975,100 common shares for a total of $10,836 under the normal course issuer
bid which commenced on December 15, 2011 and was completed March 3, 2012 through the facilities of the TSX, repurchased
120,000 common shares for a total of $631 under a normal course issuer bid (“2012 NCIB”) that commenced on March 13, 2012
through the facilities of the TSX, and returned $3,041 to shareholders through dividends. On January 31, 2012, we repaid in cash
the remaining aggregate principal amount of the outstanding Debentures and accrued and unpaid interest totaling $233,247, and
as at March 31, 2012 we have no debt. We achieved these results while financing our current operations including our
significant litigation investments.
2012 First Quarter Financial Results 9
RESULTS AND OUTLOOK
Overall performance
This MD&A discusses our performance for the three months ended March 31, 2012 and 2011.
Three months ended Three months ended
March 31, 2012 March 31, 2011
Revenue
Royalties $ 24,693 100% $ 26,345 100%
Operating expenses
Cost of revenue 7,446 30% 5,992 23%
Research and development 2,771 11% 1,463 6%
Marketing, general and administrative 7,017 28% 14,124 54%
Realized foreign exchange loss 6 0% 340 0%
Unrealized foreign exchange gain (5,376) (22)% (2,489) 0%
Total operating expenses 11,864 48% 19,430 74%
Earnings from operations 12,829 52% 6,915 26%
Investment income 722 3% 317 1%
Interest expense (1,126) (5)% - 0%
Debenture financing, net (31,138) (126)% - 0%
Earnings (loss) before income taxes (18,713) (76)% 7,232 27%
Provision for (recovery of) income tax expense
Current 1,225 5% 1,007 4%
Future (5,527) (22)% (13,574) (52)%
(4,302) (17)% (12,567) (48)%
Net earnings (loss) $ (14,411) (58)% $ 19,799 75%
Earnings (loss) per share
Basic $ (0.12) $ 0.17
Diluted (0.12) 0.17
Weighted average number of common shares
Basic 121,816,678 117,081,518
Diluted 121,816,678 119,875,722
· Revenues for the three months ended March 31, 2012 were $24,693 representing a decrease of $1,652 or 6% over the
three months ended March 31, 2011;
· Operating expenses for the three months ended March 31, 2012 were $11,864 which represents a decrease of $7,566 or
39% as compared to the three months ended March 31, 2011. Excluding the unrealized foreign exchange gain, operating
expenses for the three months ended March 31, 2012 were $17,240 as compared to $21,919 for the same period last year;
· Net loss for the three months ended March 31, 2012 was $14,411 or $0.12 per basic and diluted share as compared to
net earnings for the three months ended March 31, 2011 of $19,799 or $0.17 per basic and diluted share. Net earnings
for the three months ended March 31, 2012 included $31,138 of debenture financing costs. Net earnings for the three
months ended March 31, 2011 included a recovery of future tax of $13,574 as a result of the reversal of a portion of our
valuation allowance related to our deferred tax assets.
2012 First Quarter Financial Results 10
The table below reconciles the net earnings to the adjusted earnings we have reported.
Three months ended Three months ended
March 31, 2012 March 31, 2011
Net earnings (loss) under GAAP $ (14,411) $ 19,799
Adjusted for:
Unrealized foreign exchange gain (5,376) (2,489)
Depreciation and amortization 6,167 5,120
Stock-based compensation 1,055 686
Interest expense 1,126 -
Debenture financing, net 31,138 -
Income tax recovery (4,302) (12,567)
Adjusted earnings $ 15,397 $ 10,549
Adjusted earnings per basic share $ 0.13 $ 0.09
Weighted average number of common shares
Basic 121,816,678 117,081,518
Diluted 121,816,678 119,875,722
The adjusted earnings for the three months ended March 31, 2012 were $15,397 as compared to $10,549 for the three months
ended March 31, 2011. The increase in adjusted earnings for the three months ended March 31, 2012 is primarily attributable to
the decrease in litigation expenses, partially offset by an increase in cost of revenue and R&D expenses, and a decrease in
revenue.
Revenues
Revenues for the three months ended March 31, 2012 were $24,693 representing a decrease of $1,652 or 6% over the three
months ended March 31, 2011.
Three months ended
March 31, 2012 March 31, 2011
Revenues $ 24,693 $ 26,345
Decrease from comparative period (6)%
Our revenues are derived from four principal sources: (i) running royalty agreements pursuant to which licensees pay us
royalties based on either a percentage of the net selling price of licensed products or a fixed fee per licensed product sold; (ii)
fixed fee royalties consisting of a set quarterly or annual amount for all licensed products sold by licensees; (iii) one-time lump
sum fees to cover the sale of all licensed products by a particular licensee, subject to certain limitations; or (iv) the outright sale
of patents providing the acquirer exclusive rights to the technology (“Brokerage”). License agreements are generally for a five
to eight year period but can be significantly longer. We consider revenue to be earned when we have persuasive evidence of an
arrangement, all obligations that we need to perform have been fulfilled in accordance with the terms of the license agreement,
including delivery and acceptance, the revenue amount is reasonably determinable and collection is reasonably assured.
Revenues can vary significantly from quarter to quarter depending upon the type of royalty arrangement with licensees, the
timing of royalty reporting by licensees, the cyclical nature of licensees’ markets and fluctuations in foreign currency and other
factors. Revenues can fluctuate based on individual licensees’ growth and success rates in their respective markets, and other
market factors on their respective businesses and other factors outside of our control. The impact of these factors may become
less significant in the future given the significant fixed license agreements signed during the first six months of fiscal 2011. See
“Risk Factors” contained in our AIF for more detailed information.
2012 First Quarter Financial Results 11
Revenue is comprised as follows:
Three months ended
March 31, 2012 March 31, 2011
Royalties 100% 100%
Brokerage 0 % 0%
100% 100%
Two licensees accounted for more than 10% of revenues from royalties for the three months ended March 31, 2012 and 2011.
For the three months ended March 31, 2012, the top ten licensees accounted for 81% of revenues from royalties, whereas in the
comparable period last year the top ten licensees accounted for 85% of revenues from royalties.
For the three months ended March 31, 2012 and 2011 there was no revenues from Brokerage. We may sell patents from our
portfolio when we believe the revenue from an outright sale of patents is greater than what can be derived from licensing the
patents.
Cost of Revenue
Cost of revenue includes all costs associated with our patent licensing activities including any third-party royalty payments
required under royalty arrangements, staff costs, and other costs incurred in conducting license negotiations as well as
amortization expense related to acquired patents. We also include, as a cost of revenue, any business development costs
related to sourcing new patent portfolios or developing new strategic partnerships.
Three months ended
March 31, 2012 March 31, 2011
Cost of revenue $ 1,293 $ 860
Amortization of patents 5,929 5,006
Stock-based compensation 224 126
$ 7,446 $ 5,992
Percent of revenue 30% 23%
Increase from comparative period 24%
Cost of revenue for the three months ended March 31, 2012 was $7,446 or 30% of revenues as compared to $5,992 or 23% of
revenues for the same period last year. The increase in expenses for the three months ended March 31, 2012 is primarily
attributable to compensation costs as a result of increased staffing levels, higher third-party royalties and an increase in
amortization expense as a result of patent acquisitions we completed during fiscal 2011. In general, patent licensing expenses are
proportional to the breadth and depth of our licensing and patent brokerage programs and should be expected to increase as we
add programs to our business operations.
A key element of our strategy involves acquiring additional patents or obtaining exclusive licensing arrangements through
relationships with patent holders that may be accounted for as acquisitions. Any further acquisitions will increase amortization
expense from our current levels. We have acquired approximately $193,000 in patents since November 1, 2006.
2012 First Quarter Financial Results 12
Research and development expense
Three months ended
March 31, 2012 March 31, 2011
Research and development $ 2,403 $ 1,289
Depreciation 104 24
Stock-based compensation 264 150
$ 2,771 $ 1,463
Percent of revenue 11% 6%
Increase from comparative period 89%
We designed, developed and sold or licensed a variety of advanced digital wireless technologies, systems and products since
our inception in the early 1990s until 2006. Over the course of our history, our strength has been our ability to explore emerging
technologies, identify needs created by the development of advanced wireless systems and build technologies for those new
requirements. Today, we are focusing our R&D efforts on advanced wireless technologies and, in particular, on technologies
applicable to the use of whitespace frequencies (those previously occupied by analog television broadcast signals) for
broadband access and LTE base station applications. These efforts have fostered inventions that form the basis of a number of
new patent applications. The costs associated with these efforts, principally staff costs (including stock based compensation)
and certain external consultants, are classified as R&D.
We also consider the expenses related to the management of our patent portfolio as R&D costs because they directly relate to
our most important asset, our patents. The management of our patent portfolio involves filing patent applications, prosecuting
applications to obtain issued patents, documenting infringement, assessing validity of issued patents, conducting due
diligence on patents and applications to be acquired and other general administrative tasks. Many of these costs are directly
related to the size and depth of our patent portfolio.
For the three months ended March 31, 2012, R&D expenses were $2,771 as compared to $1,463 for the three months ended
March 31, 2011. The increase in spending is primarily attributable to the increased level of staff employed (from eight to sixteen)
in the two principal R&D initiatives noted above and increased costs associated with the size and breadth of our patent
portfolio.
Marketing, general and administration expense
Three months ended
March 31, 2012 March 31, 2011
Marketing, general and administrative costs $ 2,457 $ 1,734
Litigation expense 3,858 11,366
Incentive costs - 524
Depreciation 135 90
Stock-based compensation 567 410
$ 7,017 $ 14,124
Percent of revenue 28% 54%
Decrease from comparative period (50)%
Marketing, general and administrative (“MG&A”) expenses represent the cost of litigation and corporate services including
facilities, executive management, finance, corporate legal, human resources, office administration, marketing and
communications, information technology and all costs associated with being a public company. For the three months ended
March 31, 2012, MG&A expenses amounted to $7,017 or 28% of revenues as compared to $14,124 or 54% of revenue for the
three months ended March 31, 2011. The decrease in spending for the three months ended March 31, 2012 is primarily
attributable to a decrease in litigation expenses resulting from the various settlements we entered into during fiscal 2011.
2012 First Quarter Financial Results 13
Non-litigation related MG&A costs increased for the three months ended March 31, 2012 primarily due to the accrual of variable
compensation costs related to employee bonuses and restricted share units, staff costs and public company related costs as a
result of our listing on NASDAQ in fiscal 2011.
Non-litigation related MG&A costs will vary from period to period depending on activities and initiatives undertaken, and
changes in staffing levels in any given period.
Our litigation expenses consists of all expenses related to the management and conduct of our litigation activities and include
the costs of internal resources assigned to the litigation management function, external legal counsel and third party costs
including those of expert witnesses and other service providers required during the course of litigations.
For the three months ended March 31, 2012, litigation expenses amounted to $3,858 compared to $11,366 for the same period last
year. The decrease in litigation expenses is attributable to the various settlements we entered into during fiscal 2011 resulting in
a decrease in the level of litigation activities. Litigation expenses are expected to vary from period to period due to the variability
of litigation activities and are expected to increase significantly in fiscal 2012 given the level of litigation matters that are
currently active.
During the three months ended March 31, 2012, we realized an increased level of litigation activities primarily as a result of the
launch of patent infringement actions before the U.S. District Court for the Eastern District of Virginia and the U.S. District Court
for the Southern District of Florida, both of which matters are expected to have accelerated schedules and are currently
progressing towards their respective discovery phases, and extensive preparation for the “claims construction” hearing held
April 26, 2012 in our action before the U.S. District Court for the Eastern District of Texas (the “EDTX Court”) against Alcatel-
Lucent USA Inc. and other defendants.
In the course of our normal operations, we are subject to claims, lawsuits and contingencies. Accruals are made in instances
where it is probable that liabilities may be incurred and where such liabilities can be reasonably estimated. Although it is
possible that liabilities may be incurred in instances for which no accruals have been made, we have no reason to believe that
the ultimate outcome of these matters would have a significant impact on our consolidated financial position.
In certain of our patent infringement litigations we have been represented by the law firm of McKool Smith (“McKools”).
Pursuant to our engagement with McKools, in consideration for a discount on fees, we have agreed to pay McKools a success
fee based on achieving certain minimum financial measures. Upon achieving these financial measures, McKools will be entitled
to receive a percentage of the proceeds actually received from these litigations up to a maximum of $27,986. Pursuant to the
license agreements and settlements relating to these litigations signed to date, we have collected and expect to collect proceeds
from these litigations over the next five years. Should we collect these amounts as contemplated in the agreements, McKools
will be entitled to the entire success fee. We accrued the full amount of the success fee obligation in fiscal 2011. As at March 31,
2012, the current and long term portion of the success fee obligation is $14,009 and $13,977, respectively.
Since the beginning of our fiscal quarter that ended on March 31, 2012, the following events have taken place with respect to
the litigation matters we disclosed in the March 9, 2012 MD&A for our year ended December 31, 2011 :
· in our action against LG Electronics, Inc. (“LG”) and LG Electronics U.S.A., Inc. (collectively, “LGE”) before the U.S.
District Court for the Southern District of New York, we announced on March 8, 2012 that U.S. District Court Judge
Kaplan had adopted most of the earlier recommendations of U.S. Magistrate Judge Peck in this case, ruling that LGE
did not infringe our U.S. patent number 5,828,402 (the “402 patent”) on a claim construction issue, and that Judge
Kaplan had granted LGE’s motion for summary judgment against WiLAN. This ruling is limited to only LGE products
with respect to patent infringement and does not make any determinations regarding the validity of the 402 patent. We
remain confident of the validity of the 402 patent and its wide applicability to the industry in general and LGE’s
products in particular and have filed an appeal of Judge Kaplan’s ruling in the United States Court of Appeals for the
Federal Circuit.
2012 First Quarter Financial Results 14
· in our action against companies including Alcatel-Lucent USA Inc., Ericsson Inc., Sony Ericsson Mobile
Communications (USA) Inc., and HTC Corporation (“HTC”) before the EDTX Court with respect to 4 of our U.S.
patents, a “claims construction” hearing was held on April 26, 2012, but no decision has yet been rendered. This case
continues through the discovery phase.
· in our action against HTC before the EDTX Court relating to the 222 patent and the 802 patent, the EDTX Court issued
a scheduling order on February 7, 2012 setting the “claims construction” hearing in this action for February 21, 2013
and the trial for this action is scheduled for August 5, 2013. This case continues through the discovery phase.
· in our action against Apple Inc., Alcatel-Lucent USA Inc., Dell Inc., Hewlett-Packard Company, HTC America, Inc.,
Kyocera International, Inc., Kyocera Communications, Inc., Novatel Wireless, Inc. and Sierra Wireless America, Inc.
before the EDTX Court relating to the 222 patent and the 802 patent, we have requested that the EDTX Court
consolidate this action with the separate HTC action also relating to the 222 patent and the 802 patent . The “claims
construction” hearing in this action is scheduled for February 28, 2013 and the trial for this action is scheduled for
March 10, 2014.
· in the action that we and 01 Communique Laboratory, Inc. (“01 Communique”) filed against Bomgar Corporation
(“Bomgar”) in the U.S. District Court for the Eastern District of Virginia on January 4, 2012, Bomgar has filed an answer
alleging non-infringement, invalidity, and uneforceability . This case is moving towards the discovery phase.
· in our action against Research In Motion Limited and Research In Motion Corporation (collectively, “RIM”) before the
U.S. District Court for the Southern District of Florida, RIM has filed an answer alleging non-infringement, invalidity,
and uneforceability . This case is moving towards the discovery phase.
· with respect to the ex parte re-examination at the U.S. Patents and Trademarks Office (the “USPTO”) of the 402 patent,
we announced on April 10, 2012 that the USPTO had confirmed the validity of all the claims in the 402 Patent and had
allowed the addition of more than 30 new claims to the 402 patent.
Realized foreign exchange loss
Three months ended
March 31, 2012 March 31, 2011
Realized foreign exchange loss $ 6 $ 340
Percent of revenue 0% 1%
Decrease from comparative period (98)%
Our realized foreign exchange loss represents the loss on unhedged transactions denominated in currencies other than our
functional currency, U.S. dollars.
2012 First Quarter Financial Results 15
Unrealized foreign exchange gain
Three months ended
March 31, 2012 March 31, 2011
Unrealized foreign exchange gain $ (5,376) $ (2,489)
Percent of revenue (22)% (9)%
Increase from comparative period 116%
Our unrealized foreign exchange gain for the three months ended March 31, 2012 was attributable to the revaluation of our
Canadian dollar denominated cash and cash equivalents, short-term investments, accounts receivable, accounts payable and
accrued liabilities as a result of the increase in the value of the Canadian dollar relative to the U.S. dollar over the reporting
period.
We cannot accurately predict foreign exchange movements and as such, cannot accurately predict future gains and losses
related to holding assets and liabilities in currencies other than U.S. dollars.
Investment income
Our recorded investment income for the three months ended March 31, 2012 was $722 as compared to $317 for the three months
ended March 31, 2011. Investment income includes interest earned on deposits and short-term investments, as well as, gains on
equity holdings. For the three months ended March 31, 2012 and 2011, investment income included gains on equity holdings of
nil. The increase in investment income is attributable to increased cash position and increased yields available on our cash
deposits and short-term investments.
Interest expense and debenture financing costs
For the three months ended March 31, 2012, we recognized interest expense, in addition to the accretion noted below, of $1,126
based on the coupon rate of 6.0%. On January 31, 2012 we repaid in cash the remaining aggregate principal amount of the
outstanding Debentures and accrued and unpaid interest and therefore there will be no further Debenture related expenses or
costs.
Three months ended
March 31, 2012 March 31, 2011
Accretion of debt discount $ 25,175 $ -
Foreign exchange loss on debenture retirement 4,217 -
Amortization of financing costs 1,746 -
$ 31,138 $ -
Percent of revenue 126% 0%
Increase from comparative period NM*
* NM - percentage is not meaningful as the change is too large
2012 First Quarter Financial Results 16
Income taxes
Three months ended
March 31, 2012 March 31, 2011
Current income tax expense $ 1,225 $ 1,007
Deferred income tax recovery (5,527) (13,574)
Provision for recovery of income tax $ (4,302 ) $ (12,567)
Current income tax expense % of revenue 5.0% 3.8%
Income tax recovery for the three months ended March 31, 2012 was $4,302 as compared to $12,567 for the previous year. The
provision for income tax is recognized based on our management’s best estimate of the weighted average annual income tax rate
expected for the full financial year. The estimated average annual rate used for the three months ended March 31, 2012 was
approximately 26% and for the year ended December 31, 2011 was approximately 28%.
We assessed the probability that deferred income tax assets will be recovered from future taxable income, and whether a
valuation allowance is required to reflect any uncertainty. For the three months ended March 31, 2012, we recorded a deferred
income tax recovery of $5,527, which is primarily attributable to the recognition of the deferred tax liabilities associated with the
debenture financing that was fully repaid during the quarter. There is a valuation allowance of $4,894 as at March 31, 2012
(December 31, 2011 - $4,474). We will continue to evaluate our deferred income tax position quarterly and record any adjustment
necessary in that period.
We claim R&D expenditures and related investment tax credits based on our interpretation of the applicable legislation in the
Income Tax Act (Canada). These claims are subject to review by the Canada Revenue Agency. For the three months ended
March 31, 2012, we recorded non-refundable investment tax credits earned of $71 as a deferred tax recovery.
The current income tax expense for the three months ended March 31, 2012 and 2011, consisted of foreign taxes withheld on
royalty revenues received from licensees in foreign tax jurisdictions for which there is no treaty relief. Withholding tax expense
for the three months ended March 31, 2012 was 5.0% of revenue as compared to 3.8% of revenues for the same period last year.
The increase in withholding tax expense as a percentage of revenue is attributable to the increase in revenue from jurisdictions
for which there is no tax treaty relief.
2012 First Quarter Financial Results 17
SELECTED CONSOLIDATED QUARTERLY PERFORMANCE
(Unaudited)
Three months Three months Three months Three months
ended March 31, ended December ended September ended June 30,
Thousands of U.S. dollars except per share amounts 2012 31, 2011 30, 2011 2011
Revenues $ 24,693 $ 24,224 $ 27,821 $ 27,419
Adjusted earnings $ 15,397 $ 17,761 $ 22,769 $ 20,442
Adjusted earnings per share
Basic $ 0.13 $ 0.14 $ 0.18 $ 0.17
Diluted $ 0.13 $ 0.14 $ 0.18 $ 0.16
Net earnings (loss) $ (14,411) $ (5,618) $ 7,317 $ 10,299
Net earnings (loss) per share
Basic $ (0.12) $ (0.05) $ 0.06 $ 0.08
Diluted $ (0.12) $ (0.05) $ 0.06 $ 0.08
Weighted average number of common shares
Basic 121,816,678 123,581,452 123,443,900 122,391,639
Diluted 121,816,678 123,581,452 125,618,973 124,821,577
Three months Three months Three months Three months
ended March 31, ended December ended September ended June 30,
Thousands of U.S. dollars except per share amounts 2011 31, 2010 30, 2010 2010
Revenues $ 26,345 $ 10,982 $ 10,790 $ 11,589
Adjusted earnings (loss) $ 10,549 $ (4,818) $ 903 $ 1,228
Adjusted earnings (loss) per share
Basic $ 0.09 $ (0.05) $ 0.01 $ 0.01
Diluted $ 0.09 $ (0.05) $ 0.01 $ 0.01
Net earnings (loss) $ 19,799 $ (11,130) $ (6,018) $ (5,606)
Net earnings (loss) per share
Basic $ 0.17 $ (0.11) $ (0.06) $ (0.05)
Diluted $ 0.17 $ (0.11) $ (0.06) $ (0.05)
Weighted average number of common shares
Basic 117,081,518 104,877,986 103,334,579 102,792,049
Diluted 119,875,722 104,877,986 103,334,579 102,792,049
Historically, our operating results have fluctuated on a quarterly basis and we expect that quarterly results will continue to
fluctuate in the future. The operating results for interim periods should not be relied upon as an indication of the results to be
expected or achieved in any future period or any fiscal year as a whole. The factors affecting our revenue and results, many of
which are outside of our control, include the factors set out under the heading “Risks and Uncertainties” above which are
discussed in greater detail under the heading “Risk Factors” in our AIF and, also include the following:
· competitive conditions in our industry, including strategic initiatives by us, our licensees or competitors, new products
or services or the implementation and take-up of new standards, product or service announcements and changes in
pricing policy by us or our licensees;
2012 First Quarter Financial Results 18
· market acceptance of our patented technologies;
· our ability to sign license agreements;
· decisions relating to our patents issued pursuant to litigation or administrative proceedings;
· the discretionary nature of purchase and budget cycles of our licensees’ customers and changes in their budgets for,
and timing of, purchases;
· strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic
investments or changes in business strategy;
· general weakening of the economy resulting in a decrease in the overall demand for products and services that infringe
the our patented technologies or otherwise affecting the capital investment levels of our current and prospective
licensees;
· timing of product development and new product initiatives; and
· the length and variability of the licensing cycles for our patented technologies.
Because our quarterly revenue is dependent upon a relatively small number of transactions, even minor variations in the rate
and timing of payment of royalties could cause us to plan or budget inaccurately, and those variations could adversely affect
our operating results. Delays or reductions in the amounts of royalty payments would adversely affect our business, results of
operations and financial condition.
2012 First Quarter Financial Results 19
CAPITAL AND LIQUIDITY
Cash and cash equivalents, and short-term investments amounted to $196,027 at March 31, 2012, representing a decrease of
$237,683 from the $433,710 held at December 31, 2011. The decrease is primarily attributable to the repayment of the remaining
aggregate principal amount of the outstanding Debentures and accrued and unpaid interest totaling $233,247.
At March 31, 2012 we had working capital of $177,965, success fee obligation of $13,977 and patent finance obligations of $4,563
which relates to deferred payment terms on patents we acquired during the three months ended March 31, 2011.
We have a revolving credit facility available in the amount of CDN$8,000 or the equivalent in U.S. dollars for general corporate
purposes and a further CDN$2,000 for foreign exchange facility. Canadian dollar or U.S. dollar amounts advanced under this
credit facility are payable on demand and bear interest at the bank's Canadian prime rate plus 1.0% per annum or U.S. base rate
plus 1.0% per annum. Borrowings under this facility are collateralized by a general security agreement over our cash and cash
equivalents, receivables and present and future personal property. As at and during the three months ended March 31, 2012, we
had no borrowings under this facility.
Under the normal course issuer bid which commenced on December 15, 2011 and completed on March 3, 2012, we repurchased
1,975,100 common shares during the three months ended March 31, 2012 for a total of $10,836.
On March 13, 2011, we received regulatory approval for the 2012 NCIB through the facilities of the TSX. Under the 2012 NCIB,
we can purchase up to 9,500,000 common shares. The 2012 NCIB commenced on March 15, 2011 and is expected to be
completed on December 13, 2012. We repurchased 120,000 common shares under the 2012 NCIB during the three months ended
March 31, 2012 for a total of $631.
We plan to use our cash resources to fund our operations and any litigation that might be required, and to purchase additional
high quality patent portfolios and patent licensing businesses that are identified and fit our value proposition and strategic
objectives.
Our ability to generate cash from operations going forward is based on collecting royalties under our signed licenses and
additional licensing of our patent portfolio to companies around the world. It is difficult to predict the timing and nature of
future licenses.
We plan to finance our cash requirements for operating expenses, litigation costs and technology acquisitions by a
combination of cash generated from licensing our patent portfolio and, if desirable based on market conditions, by selling
common shares and debt securities to the public.
OUTSTANDING COMMON SHARE DATA
We are authorized to issue an unlimited number of common shares, 6,350.9 special preferred, redeemable, retractable, non-voting
shares and an unlimited number of preferred shares, issuable in series. As at March 31, 2012, there were 121,486,714 common
shares and no special or preferred shares issued and outstanding. We also maintain a Share Option Plan, an Employee Share
Purchase Plan and a Deferred Stock Unit Plan. Under all these plans, we can issue a maximum of 10% of our issued and
outstanding common shares from time to time which was, as at March 31, 2012, 12,148,671 common shares combined. As at
March 31, 2012, we had 9,232,929 options outstanding and 74,256 DSUs outstanding.
FINANCIAL INSTRUMENTS
We are exposed to a number of risks related to changes in foreign currency exchange rates, interest rates, collection of accounts
receivables, settlement of liabilities and management of cash and cash equivalents, and short-term investments.
Credit risk
Credit risk is the risk of financial loss to us if a licensee or counterparty to a financial instrument fails to meet its contractual
obligations. Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash
equivalents, short-term investments, accounts receivable and forward foreign exchange contracts.
2012 First Quarter Financial Results 20
Our cash and cash equivalents, and short-term investments consist primarily of deposit investments that are held only with
Canadian chartered banks. Our management does not expect any counter-party to fail to meet their obligations.
Our exposure to credit risk with our accounts receivable from licensees is influenced mainly by the individual characteristics of
each licensee. Our licensees are currently, for the most part, manufacturers and distributors of telecommunications and
consumer electronics products primarily located in the United States, Canada, Taiwan, Korea, Japan, Hong Kong and China.
Credit risk from accounts receivable encompasses the default risk of our licensees. Prior to entering into license agreements with
new licensees we assess the risk of default associated with the licensee. In addition, on an ongoing basis, we monitor the level
of accounts receivable attributable to each licensee and the length of time taken for amounts to be settled and where necessary,
take appropriate action to follow up on those balances considered overdue. We have had no significant bad debts for any
periods presented.
We do not believe that there is significant credit risk arising from any of our licensees for which revenue has been recognized. If
one of our major licensees is unable to settle amounts due, however, the impact on us could be significant. The maximum
exposure to loss arising from accounts receivable is equal to their total carrying amount. At March 31, 2012, one licensee
accounted for 10% or more of total accounts receivable (December 31, 2011 – two licensees).
Financial assets past due
The following table provides information regarding the aging and collectability of our accounts receivable balances as at March
31, 2012:
Not past due $ 657
Past due 1-30 days 2,143
Past due 31-60 days 7
Past due 61-90 days -
Over 91 days past due 18
Less allowance for doubtful accounts (36)
Total accounts revievable $ 2,789
The definition of items that are past due is determined by reference to terms agreed with individual licensees. As at the date of
this report, May 8, 2012, approximately $2,101 of past due amounts have been collected. None of the amounts outstanding have
been challenged by the respective licensees and we continue to conduct business with them on an ongoing basis. Accordingly,
our management has no reason to believe that this balance is not fully collectable in the future.
We review financial assets past due on an ongoing basis with the objective of identifying potential matters which could delay
the collection of funds at an early stage. Once items are identified as being past due, contact is made with the applicable
licensee to determine the reason for the delay in payment and to establish an agreement to rectify the breach of contractual
terms. At March 31, 2012, we had a provision for doubtful accounts of $36 (December 31, 2011 - $25) which was made against
accounts receivable where collection efforts to date have been unsuccessful.
Market risk
Market risk is the risk to us that the fair value of future cash flows from our financial instruments will fluctuate due to changes in
interest rates and foreign currency exchange rates. Market risk arises as a result of our generating revenues in foreign
currencies.
Interest rate risk
The only financial instruments that expose us to interest rate risk are our cash and cash equivalents and short-term investments.
Our objective in managing our cash and cash equivalents and short-term investments is to ensure sufficient funds are
maintained on hand at all times to meet day to day requirements and to place any amounts which are considered in excess of
day to day requirements on short-term deposit with our banks so that they earn interest. When placing amounts of cash and
cash equivalents into short-term investments, we only place investments with Canadian chartered banks and ensure that access
to the amounts placed can be obtained on short-notice.
2012 First Quarter Financial Results 21
Currency risk
A portion of our revenues and operating expenses are denominated in Canadian dollars. Because the Company reports its
financial performance in U.S. dollars, our operating results are subject to changes in the exchange rate of the Canadian dollar
relative to the U.S. dollar. Any decrease in the value of the Canadian dollar relative to the U.S. dollar has an unfavourable impact
on Canadian dollar denominated revenues and a favourable impact on Canadian dollar denominated operating expenses.
Recently, increases in the value of the Canadian dollar relative to the U.S. dollar have had a negative impact on our Canadian
dollar denominated operating expenses. Approximately 22% of our cash and cash equivalents, and short-term investments are
denominated in Canadian dollars and are subject to changes in the exchange rate of the Canadian dollar relative to the U.S.
dollar. The recent increase in the value of the Canadian dollar relative to the U.S. dollar has had a positive impact on our
Canadian dollar denominated cash and cash equivalents, and short-term investments.
We may manage the risk associated with foreign exchange rate fluctuations by, from time to time, entering into forward foreign
exchange contracts and engaging in other hedging strategies. To the extent that we engage in risk management activities related
to foreign exchange rates, we may be subject to credit risks associated with the counterparties with whom we contract.
Our objective in obtaining forward foreign exchange contracts is to manage our risk and exposure to currency rate fluctuations
related primarily to future cash inflows and outflows of Canadian dollars and to secure our profitability on anticipated future
cash flows. We do not use forward foreign exchange contracts for speculative or trading purposes.
CRITICAL ACCOUNTING POLICIES, INCLUDING INITIAL ADOPTION OF POLICIES, AND CRITICAL ESTIMATES
Our management is required to make judgments, assumptions and estimates in applying our accounting policies and practices
which have a significant impact on our financial results. The following outlines the accounting policies and practices involving
the use of professional judgment and estimates that are critical to determining our financial results.
Revenue recognition
Application of the accounting principles related to the measurement and recognition of revenue requires us to make judgments
and estimates. Revenue arrangements may be comprised of multiple elements. Judgment is required in determining the
deliverables that exist in an arrangement and the nature of these deliverables. Revenue recognition requires the arrangement fee
to be allocated to the elements on a relative fair value basis. Judgment and estimates are required when determining the relative
fair value of elements utilizing stand-alone prices for similar deliverables where it exists or third-party evidence of stand-alone
price or internally generated estimates of standalone price. Revenue for elements of a license arrangement treated as a sale is
recognized when delivered. Judgment is required in determining when delivery has occurred including assessing if significant
obligations exist that must be completed and the timing of when the significant risks and rewards of ownership have been
transferred.
Certain arrangements may contain extended payment terms. Judgment is required in determining if the payment terms impact the
ability to recognize revenue due to concerns over collectability arising from credit risk or the risks of granting concessions.
Share-Based Payments
We have a Share Option Plan for our employees, officers, directors and consultants that we record at fair value. The fair value of
our options is determined using the Black-Scholes option pricing model and judgments to estimate the term of our options, the
volatility of our common shares and future dividends. In addition, judgment is required in estimating the amount of option
awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-based compensation
expense and our operating results could be materially impacted.
2012 First Quarter Financial Results 22
Investment Tax Credits
At March 31, 2012, we have approximately $6,292 (December 31, 2010 - $6,221) of non-refundable investment tax credits carried
forward, relating primarily to past R&D. These credits can be applied against future income taxes payable and are subject to a 20
year carry-forward period. Judgment is required in determining the amount of unutilized investment tax credits to record as an
asset. In assessing the potential utilization of investment tax credits, we have considered whether it is more likely than not that
some portion or all of the unutilized investment tax credits will be realized based upon estimates of our anticipated income tax
position in future periods. We will continue to evaluate our future income tax position quarterly and record any adjustment
necessary in that period.
Valuation of Deferred Income Tax Assets and Future Income Tax Expense (Recovery)
As at March 31, 2012, we had accumulated $19,817 of unused R&D expenditures for income tax purposes. These deductions are
available without expiry to reduce future year’s taxable income. We also had approximately $38,119 of tax losses available for
carry forward. As a result, as of March 31, 2012, we have a related deferred income tax asset of $21,762 which has been fully
booked. Judgment is required in determining the amounts of deferred income tax assets and liabilities and the related valuation
allowance recorded against the net deferred income tax assets. In assessing the potential realization of deferred income tax
assets, we have considered whether it is more likely than not that some portion or all of the deferred income tax assets will be
realized. Our management assesses the probability that deferred income tax assets will be recovered from future taxable income,
and whether a valuation allowance is required to reflect any uncertainty at each reporting period. We estimate when deferred
income tax assets will be realized and classify them as current and long term accordingly. We will continue to evaluate our
deferred income tax position quarterly and record any adjustment necessary in that period. As at March 31, 2012, we had a
valuation allowance of $4,894 (December 31, 2011 - $4,474).
Current Income Tax Expense
On an ongoing basis, our management reviews the estimated current tax position and the use of accumulated tax deductions.
Based on this review, we recognized a current income tax expense of $1,225 for the three months ended March 31, 2012
consisting of foreign taxes withheld on royalty revenues received from licensees in foreign tax jurisdictions for which there is no
treaty relief.
Patents and Other Intangibles
We have acquired patents, license agreements and other intangible assets directly, through business acquisitions or as full or
partial settlement of licensing fees. In determining the fair value of these patents and other intangibles, we make estimates and
judgments about the future income-producing capabilities of these assets and related future cash flows. We also make
estimates about the useful lives of these assets based on assessment of the legal and economic lives of the patents and
potential future licensing revenues achievable from our patent portfolio. Our patent portfolio as at March 31, 2012 is being
amortized on a straight-line basis over the remaining useful lives of the patents which range from six to fourteen years. If our
basis for assessing the useful lives of the intangibles and potential future licensing revenues achievable from our patent
portfolio is adversely affected by future events or circumstances, we will record write-downs of patents, write-down of other
intangible assets, or changes in the estimated useful lives of these assets, which would result in changes to amortization
expense in the future. Such changes would not affect cash flows.
The carrying value of patents and other intangibles is reviewed for impairment when events or circumstances indicate that the
carrying amount may not be recoverable. Impairments are determined by comparing the carrying value to the estimated
undiscounted future cash flows to be generated by those assets. If this assessment indicates that the carrying value of the
patents and other intangibles is not recoverable, the carrying value is then compared with the estimated fair value of the assets,
and the carrying value is written down to the estimated fair value. We have determined that there were no indications of
possible impairment during the year.
2012 First Quarter Financial Results 23
Goodwill
Goodwill is subject to annual impairment tests or on a more frequent basis if events or conditions indicate that goodwill may be
impaired. We will also test goodwill for impairment more frequently if events or circumstances warrant.
As a whole, we are considered one reporting unit. We estimate the value of our reporting unit based on market capitalization. If
we determine that our carrying value exceeds our fair value, we would conduct the second step of the goodwill impairment test
which compares the implied fair value of the goodwill (determined as the excess fair value over the fair value assigned to our
other assets and liabilities) to the carrying amount of goodwill.
We have determined there were no indications of possible impairment during the three months ended March 31, 2012.
Estimation uncertainty
Critical accounting policies and estimates utilized in the normal course of preparing our consolidated financial statements
require the determination of future cash flows utilized in assessing net recoverable amounts and net realizable values,
amortization, allowance for bad debt, legal contingency estimate, useful lives of property, equipment and intangible assets,
valuation of intangibles, valuation of debt securities, and measurement of deferred taxes. In making estimates, management
relies on external information and observable conditions where possible, supplemented by internal analysis where required.
These estimates have been applied in a manner consistent with that in the prior periods and there are no known trends,
commitments, events or uncertainties that we believe will materially affect the methodology or assumptions utilized in these
consolidated financial statements. The estimates are impacted by many factors, some of which are highly uncertain. The
interrelated nature of these factors prevents us from quantifying the overall impact of these movements on our financial
statements in a meaningful way. These sources of estimation uncertainty relate in varying degrees to virtually all asset and
liability account balances.
Critical accounting estimates are defined as estimates that are very important to the portrayal of our financial position and
operating results and require management to make judgments based on underlying assumptions about future events and their
effects.
These underlying assumptions are based on historical experience and other factors that we believe to be reasonable under the
circumstances and are subject to change as events occur, as additional information is obtained and as the environment in which
we operate changes.
Critical accounting estimates and accounting policies are reviewed annually or more often if needed, by the Audit Committee.
Adoption of accounting pronouncements
In May 2011, the FASB issued ASU No. 2011-04 (Topic 820) to amend fair value measurement and disclosure requirements to
achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting
Standards. We adopted this guidance in the first quarter of 2012 and the adoption did not have a material impact on our
consolidated financial statements.
In September 2011, the FASB issued ASU No. 2011-08 (Topic 350) to amend the test for goodwill impairment and permit an
entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is
less than its carrying amount as the basis for determining whether it is necessary to perform the two-step goodwill impairment
test. We adopted this guidance in the first quarter of 2012 and the adoption did not have a material impact on our consolidated
financial statements. We have determined there were no indications of possible impairment during the three months ended
March 31, 2012 and therefore no impairment test was performed.
2012 First Quarter Financial Results 24
In June 2011, the FASB issued ASU 2011-05 (Topic 220), to amend the option to report other comprehensive income and its
components in the statement of changes in equity. Instead, an entity will be required to present either a continuous statement
of net income and other comprehensive income or in two separate but consecutive statements. We adopted this guidance in the
first quarter of 2012 and the adoption did not have a material impact on our consolidated financial statements.
DISCLOSURE CONTROLS AND PROCEDURES
In conformance with National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings of the
Canadian Securities Administrators, we have filed certificates signed by our Chief Executive Officer and Chief Financial Officer
that, among other things, deal with the matter of disclosure controls and procedures.
Our management has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2012, and based on
our evaluation has concluded that these are effective.
The evaluation took into consideration our corporate disclosure policy and the functioning of our executive officers, Board and
Board Committees. In addition, our evaluation covered our processes, systems and capabilities relating to regulatory filings,
public disclosures and the identification and communication of material information.
Critical accounting estimates are defined as estimates that are very important to the portrayal of our financial position and
operating results and require management to make judgments based on underlying assumptions about future events and their
effects.
These underlying assumptions are based on historical experience and other factors that we believe to be reasonable under the
circumstances and are subject to change as events occur, as additional information is obtained and as the environment in which
we operate changes.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal
control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and our Chief
Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. GAAP. Because of its inherent limitations, however, internal control
over financial reporting may not prevent or detect misstatements on a timely basis.
Our management evaluated, under the supervision of the Chief Executive Officer and Chief Financial Officer, the effectiveness
of our internal control over financial reporting as at March 31, 2012. We based our evaluation on criteria established in “Internal
Control over Financial Reporting – Guidance for Smaller Public Companies” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) and, based on that evaluation, we have concluded that, as of March 31,
2012, our internal control over financial reporting is effective.
CHANGES IN INTERNAL CONTROLS
There have been no changes in our “internal control over financial reporting” that occurred during the three months ended
March 31, 2012 that have materially affected or are reasonably likely to materially affect the internal control over financial
reporting.
For the year ended December 31, 2012, management will be required to attest to the effectiveness of the “internal control over
financial reporting” pursuant to Section 404 of the Sarbanes-Oxley Act of 2002.
2012 First Quarter Financial Results 25
Wi-LAN Inc.
11 Holland Avenue, Suite 608
Ottawa, ON Canada
K1Y 4S1
Tel: 1.613.688.4900
Fax: 1.613.688.4894
www.wilan.com
